Spring Budget 2023: What the R&D Tax and Creative Tax Relief Changes Mean for Businesses

As the UK economy continues to recover from the pandemic, the Chancellor's Spring Budget 2023 announcement came with several changes that impact UK businesses. Among these changes, R&D tax and creative tax relief took center stage, with significant measures to support innovation and creativity.

If you're a business owner or financial professional, it's essential to understand these changes and how they can benefit your organization.

In this blog post, we'll dive into the details of the Chancellor's announcement, exploring what the new measures mean for businesses, and how to take advantage of these opportunities. Our expert insights will help you stay informed and make informed decisions to drive growth and success.

Additional tax relief for R&D intensive SMEs

At Autumn Statement 2022, as part of the review into the R&D tax reliefs, the Chancellor committed to considering the case for further support for R&D intensive SMEs. Following engagement with industry, the Chancellor is now acting to provide that support. From 1 April 2023, a higher rate of relief for loss-making R&D intensive SMEs will be introduced. SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5% for qualifying R&D expenditure.

The scheme is targeted specifically at loss making R&D intensive SMEs. Focusing support towards those most impacted by the rate changes introduced at Autumn Statement 2022. A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.

Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss makers.

Around 1,000 claiming companies will come from the pharmaceutical and life sciences industry. This will support the development of life saving medicines. Around 4,000 digital SMEs will be from the computer programming, consultancy, and related activities sector. This will support the development of AI, machine learning and other digital based technologies. Around 3,000 other manufacturing firms, and another 3,000 professional, scientific, and technical activities firms will also qualify for the enhanced support.

This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs.

Delay to restrictions on overseas expenditure in R&D tax reliefs

The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.

Update on ongoing R&D tax relief review

The government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes closed on 13 March. The government is currently considering the responses and no decision has been made. The government intends to keep open the option of implementing a merged scheme from April 2024. The government will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer, with a summary of responses to the consultation. Any further changes as a part of the ongoing R&D tax reliefs review will be announced at a future fiscal event, including a final decision on whether to merge the RDEC and SME schemes.

Reforms to audio-visual tax reliefs

Following a public consultation, the film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from 1 April 2024. The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs.

Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%. The expenditure threshold for high-end TV will remain at £1 million per hour.

The new Video Games Expenditure Credit will have a credit rate of 34%. Qualifying expenditure for the Video Games Expenditure Credit will be expenditure on goods and services that are used or consumed in the UK. Games that have not concluded development on 1 April 2025 may continue to claim EEA expenditure under the current video games tax relief until this relief sunsets in April 2027.

Extending the higher rates of Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR) for 2 years

The temporary higher headline rates of relief for TTR, OTR and MGETR will be extended so that from 1 April 2023, the headline rates of relief for the TTR and the MGETR will remain at 45% (for non-touring productions) and 50% (for touring productions). OTR rates will remain at 50%. From 1 April 2025, the rates will be 30% and 35%, and on 1 April 2026 the headline rates of relief for TTR and MGETR will return to 20% and 25%. The headline rates of relief for OTR will return to 25%. MGETR will also be extended for a further two years until 31 March 2026. 

Qualifying expenditure for theatre, orchestra, and museums and galleries exhibition tax reliefs will be changed to ‘expenditure on goods and services that are used or consumed in the UK.’ This will align the cultural reliefs with the audio-visual reliefs and ensure these reliefs remain compliant with the UK’s international obligations. Productions that have not concluded by 1 April 2024 may continue to claim EEA expenditure until 31 March 2025.

Capital allowances: Full expensing

From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. This means companies across the UK will be able to write off the full cost in the year of investment, known as full expensing.

Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment.

Expenditure on plant or machinery for leasing is excluded from first -year capital allowances due to longstanding concerns about abuse and wide scope for error. The government will work with industry to identify possible policy solutions that appropriately mitigate these risks

Get in touch with the R&D tax relief experts at Myriad Associates

Whatever stage you’re at in your claim for R&D Tax Credits, simply contact us on 0207 118 6045 or use our contact page.

Whether you need full support from start to finish or simply have a quick question, we’re here to help.